Two State-owned building materials firms -- China National Building Materials Group Corporation and China National Materials Group Corporation Ltd -- started merger preparations in the latest move of SOE consolidation and shedding of cement industry overcapacity.
The State-owned Assets Supervision and Administration Commission gave the green light to their merger on Monday.
The share price of fiberglass manufacturer China Jushi Co Ltd rose 0.62 percent on Tuesday, with the largest increase of 4.79 percent in the morning, driven by the merger news of its parent company China National Building Materials Group Corporation with Sinoma.
Since their business overlapped in the cement sector, the reorganization will help the two enterprises reduce excess capacity, and maintain their competitiveness, building materials analyst Wang Junying wrote in a research note.
For example, four units of CNBM have the capability to produce 299 million metric tons of cement clinker, and Sinoma can produce 85.5 million tons.
The combined capacity accounts for 22 percent of the whole industry in China.
"The industry will accelerate the pace of mergers and acquisitions in the second half of the year, given the background of reducing excess capacity," said Chen Bailin, CEO of Digital Cement, an industry website.
CNBM, headquartered in Beijing, is the world's major non-metal materials manufacturer and cement equipment and engineering service provider, with total assets of more than 430 billion yuan ($64.51 billion) and 180,000 employees.
It was ranked 327th on the Fortune 500 with revenue of $31.7 billion in 2015, down 22 percent year-on-year. In the same period, it reported a net loss of $142 million.
Sinoma is also an industry leader in the non-metal materials industry, with total assets of more than 119 billion yuan.
Under the merger, a new building material giant will come into being, with total assets of nearly 570 billion yuan.
Xiao Yaqing, head of the SASAC, said: "We need to reinforce the integration between similar businesses and take advantage of leading industry players."
The State Council released the guidelines on SOE mergers and acquisitions in July last year, calling on the enterprises to form a mechanism in which State assets can flow flexibly by way of M& As, innovation, reducing capacity, and dealing with inefficient capital.
